Working capital management @ gadag textile project report

THE GADAG CO-OPERATIVE TEXTILE MILL LTD, GADAG.

EXECUTIVE SUMMARY

The project has been under taken under as the part of master of business
administration course as per the direction of Karnataka university dharwad. The
second year MBA students will take part in this project were the summer inplant
project for the period of two months and the project is related to finance and the topic
of this project is “The study of working capital management”
The Gadag co-operative textile mill ltd established in 1972 by late
shri.K.H.Patil at Hulkoti in Gadag district. It is producing main product as yarn. The
company started with a production cost of RS.220lakhs.It is started producing yarn in
the year 1973.
A G.C.T.M has an arrangement of different department of the dependent
parts of functions and their interrelation in the structure form to provide the necessary
efforts of groups of individuals will be directed towards a common objective. So as to
identify the problems of such a title and give suggestions and conclusions. In addition to
this concept studying the over all organization role of different department functions of
their respective departments, procedures and policies.

The project is mainly focuses on the industry profile, company profile, SWOT
analysis, annual report and about working capital and ratios. this project studies
different department at the Gadag co-operative textile mill ltd. The functions of each
department and the organization in the company along with it covers the duties and
responsibilities of all the staff members type of decision making followed by the mill
and it also includes quality policy export oriented unit etc of the mill.

DESIGN OF THE STUDY

Title of the study

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“To study on working capital management” at The Gadag Co-operative Textile Mill
Ltd. Hulkoti”

OBJECTIVES OF THE STUDY:
1) To study the working capital management.
2) To know the sources of working capital.
3) To study the different components of working capital of the company.
4) To calculate the operating cycle of an organization.
5) To calculate the working capital of an organization.
6) To study the liquidity position of the company with the help of ratios.

METHODALOGY

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PRIMARY DATA: The information collected from personal interaction with
manager and other staffs

SECOUNDRY DATA: The annual report of the company and company
website

INDUSTRY PROFILE

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The Indian Textile Industry occupies an important place in the Economy
of the Country because of its contribution to the Industrial Output, Employment
Generation and Foreign Exchange Earnings. At present, the contribution of the textile
Industry to GDP is about 4 percent. The textile industry provides direct employment
to about more than 35 million people and is the second largest employment provider
in India next to agriculture. The contribution of this industry to gross export earnings
is about 31% of the country.

The Textile Industry is a self-reliant industry from the production
of raw materials to the delivery of final products with considerable value addition at
each stage of processing. The industry was delicensed in 1991 and under the current
policy no prior government approval is necessary to set up textile mills. The per
capita cloth availability in the country has increased from 24.1 square meters in 1991
to 30.7 square meters in 2000-01.The textile sector including the garment sector has a
continual increase in the FDI inflow from Rs.80.99 million to Rs.234.73million.

From growing its own raw material (cotton, jute, silk and wool) to
providing value added products to consumers (fabrics and garments), the textile
industry covers a wide range of economic activities, including employment generation
in both organized and unorganized sectors. Manmade fibers account for around 40 per
cent share in a cotton dominated Indian textile industry. India accounts for 15% of
world's total cotton crop production. And it is the second largest employer after the
agriculture sector in both rural and urban areas. India has a large pool of skilled low-
cost textile workers, experienced in technical skills. Almost all sectors of the textile
industry have shown significant achievement. India's cotton textile industry has a high
export potential. Cost competitiveness is driving the penetration of Indian basic yarns
and grey fabrics in international commodity markets. Besides natural fibers such as
cotton, jute and silk, synthetic raw material products such as polyester staple fiber,
polyester filament yarn, acrylic fiber and viscose fiber are produced in India.
From 1st January 2005, all textile and clothing products would be
traded internationally without quota-restrictions. And this impending reality brings the
issue of competitiveness to the fore for all firms in the textile and clothing sectors,
including those in India. With the dismantling of quotas in 2004 under mandate from
the Agreement in Textile and Clothing of the WTO, the focus has clearly shifted to

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the future of the Indian textile and clothing exports. It is imperative to understand the
true competitiveness of Indian textile and clothing firms in order to make an
assessment of what lies over a period of time.

Global trade in Textile and clothing -India’s performance
During the MFN period, the textile exporters from industrial countries and those from
developing countries merely changed shares between themselves during 24 years .The
share of industrial countries declined by almost as much (19.2%) as was the gain in
the share of developing countries (18.8%). Clothing exporters, however, exhibit
significant changes, with the share of top exporters having declined by 13.8%.
New entrants have come in as well as some old ones have been knocked out. Of these
new entrants, most- if not all- are from developing countries, since the share of
industrial countries has declined during the period, and that of developing countries
has increased. The countries that are gaining share in clothing exports are the
ones whose industries are integrated to one or the other advanced country
through some policy-induced preferential arrangements. Mexico, Caribbean
region, East European countries and Mediterranean countries are capturing much of
the space vacated.
There has been a much deeper globalization in clothing than in textiles. Indeed, that
has been one of the principal reasons for the developed countries agreeing to an
eventual phase-out in the UR of negotiations. While in textiles, there was an
inexorable shift away from developed countries in 1973 to1997 and to developing
countries at large, in clothing the shift away from developed countries is increasingly
being grabbed by ‘preferred’ developing countries.
Thus, in clothing, the non-preferred group of developing countries is fighting amongst
themselves for a pie that is increasingly declining.
One should expect a much higher level of intra-industry and intra-firm trade in
clothing than in textiles. This is entirely compatible with the fact that it is the trade in
Clothing that is growing faster than that in textile.
And this trend is likely to deepen, as Clothing retailers consolidate, and Outward
Processing Trade (OPT) traffic increases. The Opportunity clearly lies much more in
clothing, though the caveat is the exporting.

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Country would have to achieve the ‘preferred’ status, and integrate its manufacturing
with that of an importing country in order to continue exporting to the restricted
markets. The pressure to export would intensify in the years to come since 80% of
additional output during 1995-2005 is expected to be located in developing countries.
On the other hand, only 50% of the additional fibre consumption would originate in
developing countries.

COMPANY PROFILE

COMPANY DETAILS:

Name of the mill : - The Gadag Co-operative Text
Mill Ltd Hulkoti.

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Famous name : - The G.C.T.M Ltd Hulkoti

Address : - The G.C.T.M Ltd Hulkoti
Post: Hulkoti 582205
Tq &Dist: GADAG
Karnataka
Phone no: 289042, 289371
Mobile: 9449570255
email:gadagcooptex@sanchar.net.in

Registered office : - Hulkoti
Tq &dist: Gadag

Registration : - The mill has been registered under
The Karnataka co-operative society
act 1959

Registration No : - RCS 2022/72-73

Establishment : - 08-07-1972

Production began : - 1973

Sales turn over : - 25 crores

Nature of business : - production and sale of yarn

Background of the company

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The village hulkoti comprises of various sections of people and since long it has
been the cradle of co-operative movement in having the first primary credit co-
operative society established in the erstwhile Bombay state. The occupation of the
village is mainly agriculture. The farmer and farm laborers form a nucleus of this rural
area. The main crops grown around hulkoti are jowar, cotton, groundnut, chilly and
other pluses.
Since there are no other major irrigation projects, dry land cultivation is the only
way for the farming community. Agriculture produce particularly cotton, groundnut,
jowar etc. were being marketed to the tune of Rs/90 to 100 crores per annum in and
around gadag. Prior to the emergence of the Gadag Co-operative cotton sale Society
Ltd., Gadag farming community was exploited by private traders and commission
agents.
It is at this juncture, realizing the need for upliftment of mach neglected farmers
community and to improve the lot of rural area, Late Shri K.H.Patil, a son of soil and
veteran co-operator devoted he time fully for the establishment of
a co-operative network around hulkoti providing various amenities and scope for
development of farmers which went ahead against all odds both traditional and political
till he transformed a vision into a reality. This Endeavour had transformed into worthy
institution located on either side of highway no 63 between hulkoti and Gadag
After successful setting up of Ginning and pressing unit by the Gadag Co-
operative cotton sale society, the next ambition of our Co-operator, was to establish a
spinning Mill of 25,000 spindles capacity which would consume the main agriculture
produce by paying remunerative prices to cotton growers and to save the farming
community from the cluthes of private traders
It is with this ideal background The Gadag Co-operative mill was established in
the year 1972 with the project cost of Rs 220 lakhs and commenced its trail production
in April 1973 we have a feather in the cap for having installed 25000 spindles capacity
mill in a record time in the entire country.

MODERNIZATION PROGRAM
After a period of 18 years there was a need for upgrading technology
of certain machines and to eater to the export needs, the Management proposed a
Modernization Programme at a cost of Rs. 429.00 Lakhs. The term, lending
institutions sanctioned Rs. 236.69 Lakhs and the balance Rs. 192.31 lakhs was from

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the internal resources of the Mills. The Mill replaced Carding Machines, winding
machines and added one Open End Spinning machine and one Imported Auto Conner
of latest technology. With the implementation of this Project there was improvement
in the productivity and the quality of the finished product.

To meet the standards of the quality yarn in demand, both in domestic as well as
in International markets, the Management of the Mills thought it inevitable to launch
another Modernization Programme covering Machinery from blow room to Spinning
was planned. This programme, with an estimated cost of Rs. 920 Lakhs was approved
by the national Co-operative Development Corporation (N.C.D.C.) and the Government
of Karnataka.

As part as Modernization Programme, N.C.D.C. has sanctioned Rs. 736.00
Lkahs, while Government of Karnataka contributed Rs. 136.00 Lkahs as share capital.
The rest amount of Rs. 46.00 Lkahs was mobilized from Members of the Society
through shares.

With successful implementation of 2nd Phase of Modernization Programme, the
latest version of Auto leveler Machinery at Carding and Drawing Sections are inducted
and commissioned. Following this, efforts are being made to raise the productivity to
high standards. Further, completion of Modernization enables us to qualitative
requirement of requirement of International market Standards.

BASIC CONCEPTS USED IN TEXTILE MILL

Fiber : A slender filament ; a fine thread like part of a
substance
.
Kapas : Cotton with seeds and impurities

Lint : Cotton free from seeds and impurities

Ginning : The mechanical process of separating the cotton

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Fiber from seeds

Bale : A bundle or packages of cotton compressed and
Bound with cord or wire weight round about 170
Kgs.

Spinning : The process of drawing out and twisting the fiber
of cotton, Wool etc. Into thread or yarn either by
hand or machine.

Spindles : The rods or pins of spinning machine known as
The ring frame holding the bobbins on the which
yarn wound as it is spun . Such spinning is
expressed in terms of the number or spindles or
rotors.

Rotors : In the modern of spinning known as the open end
spinning instead of spindles rollers are used.

Yarn : A textile thread obtained by twisting of
consecutively Disposed and Straightened
ultimate composite fibers.

Hank & cones: Yarn is supplied to the market in to different
forms hank yarn and cone yarn Hank yarn is
convenient form of bleaching, and transport but
needs winding before placing on the loanIt is
used by hand loom weavers .Cone yarn however
eliminates the Need form winding and can be
directly used in power looms .

Count : A count is measure of thickness or fitness of yarn
The various counts groups manufactured are 10s,
20s, 24s, 30s,32s,34s,40s, 60s, 80s 100s both in

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Hank and Cone. Lower counts indicates coarse
yarn and higher counts indicates fine Yarn

Objectives of the company

 To satisfy customers by integrating their needs in the mill yarn.

 To sustain a mill of able and committed employees and provide opportunities for
growth and development.

 To improve the process of managing mill affairs through proper planning, timely
improvement of plan and performance review.

 To faster culture innovation with the application of new ideas and methods to
solve the business problems.

 To provide the employment opportunities to Men& women of rural area

Nature of business carried

The first step the company purchases the raw material i.e. cotton from the farmers
then it mixes it with different quality of cotton according to the quality of yarn they
needed.

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The next step is cleaning the minor part and spraying the water to it. Then it kept
one day in cool place. Next step it goes to the major cleaning part it goes to all the
cleaning of the cotton.
The next process is carding here the cotton will become smoothly and white.
Next goes to the simplex method in this method cotton becomes big layers and it makes
the group of layers
The next process is procedure is rolling and grilling here the big layers are rolled
and it is separated from the group and comes in the form of loose thread and next
process is drafting and twisting and the thread becomes strong and it comes layer by
layer in the form of thin yarn. The next is nothing here if thread goes into two parts the
machine will join it and it is called noting process.
Finally after all these process the raw material is converted into the finished
goods which are in the form of yarn.

VISION MISSION QUALITY

VISION: To be a premier textile company with a clear focus to become globally
competitive, through growth and technology up gradation committed to excellence in
quality service and co-operatives

MISSION: To purchase the creation of values for all its customers, share holders,
employees and society at large

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QUALITY POLICY: The company will give main importance to the satisfaction
of the customers by producing good quality yarn and produce yarn to meet with the
market position the company will not see with the quality of raw material. The company
is also having a quality control department to check out the yarn quality in overall
stages to take any corrections required immediately.

PRODUCT PROFILE

The following table indicates the production performances/ progress since
2003-04 to 2007-08
sl Particulars 2003-04 2004-05 2005-06 2006-07 2007-08

A. Production
1. Cotton consumed 33.37 35.20 32.31 32.49 32.39
kgs in lakhs
2. Value in lakhs Rs. 1894.90 1812.25 1375.00 1460.90 165615
3. Yarn produced in lakhs 28.01 29.57 26.80 27.53 27.83
kgs

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B. Cac capacity Utilization an
productivity
1. Spdl utilization % 63.57 71.39 73.49 73.97 69.81
2. Production 84.00 82.37 82.15 83.15 86.20
(converted to 40s)in
gram per spindle

THE MARKET AREA
The mill has its market overall the different areas of the country like N.H.D.C.,
K.H.D.C., malligov, sollapur, ichalkaranji, Bangalore.

OWNERSHIP PATTERN
The G.C.T.M. ltd is situated in the village hulkoti of Karnataka. Shri D.R.Patil and
H.M.Soppin are the chairman and vice chairman of the G.C.T.M. hulkoti.

S.L. Name Designation
No:
1 Shri D. R. Patil Chairman
2 Shri H.M. Soppin Vice Chairman
3 Shri R.M. Mulimani Director
4 Shri V.B. Inamati Director
5 Shri T.B. Mundavad Director
6 Shri C.B. Karikatti Director
7 Shri V. R. Naganur Director
8 Shri S.B. Balaraddi Director
9 Shri S.B. Bhasetti Director
10 Shri S.C. Kanavi Director

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11 Shri S.C. Huilgol Director
12 Shri G.N. Patil Director
13 Shri A.S. Patil Director
14 Shri R.B. Hosamani Director
15 Shri B.H. Dyavanashi Director
16 Shri S. K. Kuradagi Director
17 Shri D.S. Odugoudar Director
18 Shri R.Y. Director
Kempalinganagoudar

General Manager
District Industries center Gadag Director

Deputy Director of Handlooms
And Textile Inviters

Joint Registrar of
Co-operative societies Director

Shri T. Shantaveerappa
Managing Director Director

COMPETITORS INFORMATION

The competitors for G.C.T.M are

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• Banhatti co-operative spinning mill. Banhatti.
• Raitara sahakari noolina girani. Rannebennur.
• The farmer’s co-operative spinning mill ltd. Hulkoti.
• Sangoola mills solapur.

INFRASTRUCTURE FACILITY

Head office: The head office of G.C.T.M is located in hulkoti the function of finance,
marketing and raw material procurement are carried by head office only it doesn’t have
its branch.

Land: The mill is established in the rural area near gadag at village hulkoti with
approval of the site selection committee. The total area covered is of 90528.25 sq ft out
of which build up area is 643.45 sq mt. there is the beautiful garden plantations
pollution free and healthy environment in the mill area.

Other facilities: The mill has provided an quarters facilities to the workers and there
is an rest room for workers and drinking water facility and also cultural activities in
independence day, republic day, and workers day will be held and there is also an
canteen facility provided by the mill

AWARDS

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The mills has got an some awards for continuously three years in the year 1978-79,
1979-80, 1980-81, the mill has ranked first for India and second for Asia.
The two awards were pretend to the mill as per the techno-economic data
presentation which is made by the mill in the Pune on 10th April 2005 the award for the
operating net profit per installed spindle and operating cash profit per installed spindle
has got

WORK FLOW OF MILL

MIXING: Bales of different counts are mixed along with usable wastes, on
different percentage in the mixing bins, cotton bales of different quality are opened and
stacked, called stock mixing, 24 Hours for conditioning before it is process further.

BLOW ROOM: Cotton in losses form is spending on mixing bale openers and
taken further of different cleaning points where the cotton is beaten and trash is
extracted. Finally converted into Lap form of different length, weigh per yard,
depending on the count.

CARDING: Lap form Blow room feed to Cards where the cotton is converted from
Lap form to sliver form. During this process trash, short fibers and other impurities are
extracted the different cleaning points, like licker in, Flats section Units. The sliver is
produced of different Hank depending on the counts.

PREPARATORY: Cards sliver is drawn through different drafting Rollers and the
sliver is elongated and increasingly the length of the sliver and radiating in the cross
section by passing through different drafting rollers and convert into a suitable package
by giving little twist to the material called Rove and wound on a Bobbin.

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SPINNING: The bobbins from the Preparatory process are feed to the drafting rollers
as final treatment to the material and further increasing the length and reduction the
cross section of the material. This process the material process through Ring and
Traveler and would on the bobbin to form a suitable package the giving optimum of the
twist depending on count of the yarn.

CONE WINDING: Here the yarn spun is cleaned by passing through cleaning
devise called slub catcher and would through suitable package of required length and
weight in the form of a Cone.

DOUBLING: Here two yarn of the same count are doubled by giving necessary
twist in the form of package called bobbins.

REELING: Here single yarn or doubled yarn are wound on the swifting of the
machine called Reel in the form of Hank and are make in the form of Knots. There are
two types, a Plain or Cross Reel.

BUNDLING & BALING: Here the number of knots plain or cross is in a press
depending on the count and weight of the boundless are as per requirements. Bundles
are pressed in the form of Bale depending on the count, Plain or Cross as per the
requirement from the market.

PACKING: Here number of cones or cheeses is bagged depending on the count of
the yarn number of cones and weight of the cones. Depending on the requirement of the
market.

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DEPARTMENTAL STUDY

FINANCE DEPARTMENT

Finance department is the department which looks after the financial position of the
mill and takes over the investment decision, finance decision the mill has started with
its project cost of Rs.220 lakhs which contributed of Rs. 40 lakhs from members share,
Rs. 80 lakhs is of government share and remaining of Rs 100 lakhs is of term
loan(I.F.C.I)

MEMBER AND SHARE CAPITAL

No of share Paid up share
Sl.no Category holders Capital
1 “A”class 3014 Rs.107.47 lakhs
((individual/society)
1 Rs.015.00 lakhs
2 “B” Class (K.A.I.C)
1 Rs.695.26 lakhs
3 “C” Class (State govt)
TOTAL 3016 Rs.817.73 lakhs

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Mill has funds that may be raised

1) By issue of Shares

2) By receiving deposits from members.

3) By raising loans

4) By entrance fees

5) By accepting donations, subsidies and grants.

6) By commercial institutions.

After starting of mill after the 18 years the mill has been modernized at cost of
Rs. 429 lakhs the leading institutions has sanctioned of Rs.236.69 lakhs and remaining
balance of Rs.192.31 is from the mill itself and 2nd time modernization has done of Rs
920 lakhs which the amount is given by the N.C.D.C.( national co-operative
development co-operation) and government of Karnataka as the part N.C.D.C has
sanctioned Rs.736 lakhs and 136 lakhs by govt of Karnataka and rest of amount Rs. 46
lakhs is from members of society
The mill is invested of Rs 1771.45 lakhs and of Rs. 40 lakhs share capital to the state
government and paid the loan amount of Rs.100 lakhs of Rs. I.F.C.I term loan and also
paid the first modernization loan of Rs. 236.69 lakhs
The mill will be raised its fund by issuing of share, receiving deposit from members
by taking loans and debentures and also accepting subsidies and donations and the
sources of finance for the mill is from the K.C.C bank, N.C.D.C. loan, and bijapur
D.C.C. bank ltd.

HUMAN RESOURCE DEPARTMENT

The human resource department of the mill is recruiting, selecting seeing welfare of
the employees and providing necessary facilities for the workers. Were as in the Gadag

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co-operative textile mill there are 744 workers here 85 are staff members, 650
workers and 9 are securities
The facilities for the worker are transportation, medical, canteen, provident fund,
gratuity There are 3types of workers are there first selected (fresh) workers will be
taken as a trainee and in trainee there are two stages first stage trainee and second stage
trainee and after trainee they will be treated as badli and then as permit.
The mill works for 24 hours which is in 3 shifts no women workers are permitted
for night shift and the labour turnover is of 30 to 35 the over time duty is also there and
will be paid in double as per there working hours
The salary for the workers are paid in as the basic salary + ESI (employee state
insurance) + provident fund of 12% and bonus of 8.33% will be given and salary for 1st
stage trainee is Rs.60 and for 2nd stage trainee Rs.65 and for badlis it depend on there
work which is of Rs.75-103 and for permits also depend on there work load and shift
allowance of Rs.250 for 26 days and of Rs 312 is attendance allowance for 26
attendance per month. The recruiting of staff will be done by managing director, general
manager, asst manager and H.R. manager and other workers will be selected by the H.R
department
The G.C.T.M also provided quarters for workers with rent of Rs.20 per month and
has a transportation facility from Gadag to hulkoti and in the G.C.TM. the cultural
activities also be held on independence day republic day, and on workers day.

PRODUCTION DEPARTMENT

The G.C.T.M. is the mill which produces the yarn which are in of two types one
is in cone and another as hank .The product has been done from cotton to final product
i.e yarn. In the mill it has purchased machines from m/s lakshmi from coimbatore
The mill works 24hour of its production and it has 3shifts the first shift is handled
by production manager and 2nd shift by deputy spinning master and 3rd shift is handled
by spinning supervisor and the has 7500kg of daily production

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PROCESS OF PRODUTION

MIXING: Bales of different counts are mixed along with usable wastes, on
different percentage in the mixing bins, cotton bales of different quality are opened and
stacked, called stock mixing, 24 Hours for conditioning before it is process further.

BLOW ROOM: Cotton in losses form is spending on mixing bale openers and
taken further of different cleaning points where the cotton is beaten and trash is
extracted. Finally converted into Lap form of different length, weigh per yard,
depending on the count.

CARDING: Lap form Blow room feed to Cards where the cotton is converted from
Lap form to sliver form. During this process trash, short fibers and other impurities are
extracted the different cleaning points, like licker in, Flats section Units. The sliver is
produced of different Hank depending on the counts.

PREPARATORY: Cards sliver is drawn through different drafting Rollers and the
sliver is elongated and increasingly the length of the sliver and radiating in the cross
section by passing through different drafting rollers and convert into a suitable package
by giving little twist to the material called Rove and wound on a Bobbin.

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SPINNING: The bobbins from the Preparatory process are feed to the drafting rollers
as final treatment to the material and further increasing the length and reduction the
cross section of the material. This process the material process through Ring and
Traveler and would on the bobbin to form a suitable package the giving optimum of the
twist depending on count of the yarn.

CONE WINDING: Here the yarn spun is cleaned by passing through cleaning
devise called slub catcher and would through suitable package of required length and
weight in the form of a Cone.

DOUBLING: Here two yarn of the same count are doubled by giving necessary
twist in the form of package called bobbins.

REELING: Here single yarn or doubled yarn are wound on the swifting of the
machine called Reel in the form of Hank and are make in the form of Knots. There are
two types, a Plain or Cross Reel.

BUNDLING & BALING: Here the number of knots plain or cross is in a press
depending on the count and weight of the boundless are as per requirements. Bundles
are pressed in the form of Bale depending on the count, Plain or Cross as per the
requirement from the market.

PACKING: Here number of cones or cheeses is bagged depending on the count of
the yarn number of cones and weight of the cones. Depending on the requirement of the
market.

The mill has 32.39 lakh kg of cotton has consumed in 2007-08 and 27.86 lakh kgs
of yarn is produced and 69.81% of spindle has been utilized

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PURCHASE DEPARMENT

The purchasing of cotton is made through the conducting business committee
meeting were as the purchasing of cotton is made on every weekly of 500 to 600 bales
were as every one bale consists of 165 kgs the mill purchases different variety of cotton
such as NH44, J34, MBCH, BHARAMA, 26MM, and 28MM
The purchase of cotton is made from local which is at open auction market by the
Gadag co-op cotton sale society, T.A.P.C.S.M of annigeri were as these local cotton is
graded by the A.P.M.C authority. The purchases are also made from CCI (cotton co-
operation of India, maharastra co-operative federation, shanthi textile Mumbai, baradia
cotton company Mumbai and B.M. kollar from gokak
The price for the local is more of Rs.100-150 than the market rates and were as the
department purchase right material, right quality, and right quantity of cotton for the
mill and the mill collects the sample and makes the laboratory test and make sure of
quality which they requires and make business committee meeting and gives order of
purchasing and the payment of purchased material is made after 30 days of purchasing
to the suppliers

STORE DEPARTMENT

Objectives of the Stores Department :

1) Concentrating towards smooth running of the production process.

2) Facilitating all required equipments on time .

3) Reduction of Inventory equipments on time .

4) Working like a traffic signal to signalize to all equipments.

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5) Proper maintenance of all equipments

The mills storage has divided in 2 sub department which one is of material store and
general stores and there are 11000 items are maintained in these department and the
mill has an 7500 metric ton of storage capacity and stock of 2000 metric ton of capacity
in godown. The store department’s construction costs of Rs 13.18 crores and the
department is using two ledgers one is material receipt ledger and material issued
ledger.

QUALITY CONTROL DEPARTMENT

FUNCTION OF THE QUALITY CONTROL DEPARTMENT :

 Random lab weight checking

 Within lap variation

 Cleaning efficiency

 Waste study speeds

 Wrapping checking

 Naps study

 Uniformity checking

 Idle spindle

 Top roller pressure checking

 Rewinding study

 Gauge and tension weight checking

 Knot inspection

 Knot weight checking

BABASAB PATIL 25


This is the department which checks out the quality of the cotton and the
produced yarn in the mill. The department which checks quality before purchasing of
cotton by taking sample from supplier. the G.C.T.M has its laboratory for testing of the
cotton and the lab has installed of 1.25 crore worth of machines which is of
computerized machines the quality control also helps in minimizing cost and improves
in working condition it also helps the G.C.T.M to know the cost of there product
The cotton testing is having some steps of testing of cotton the cotton testing is
made on H.V.I (high volume instrument) the testing of material is made out of one bale
half kg will be taken testing is made of its length, strength (grass per tex), informative
ratio, maturity ratio the mill is using 26mm type of cotton for coarser, 28mm for 30s,
34s, and 40s yarn, and 31mm for 60s and above.
In blow room lap weight checking its speed and settings cleaning efficiency and
next in carding department checking of the waste and C.V%(coefficient variation)
unevenness testing 120mtrs of sliver and variation of length is made by oster testing
monthly there will be wheel checking and next drawing is made and in drawing
wrapping checking is made it is of weight checking and study of breakage and setting of
an weight is by automation and next in simplex department spindles are checks hanks
are also checks and its stretching percentage is tested and in spinning department
checking of single yarn strength and double yarn strength and checks yarn fast per kms
and next is of winding which in winding it is made of rewinding of auto counts and
makes cone weight checking and next is reeling were as knot has been tested which is
of starting end to finishing end has been checked and next is doubling in this checking
for the covering of doubling and lastly baling and packing which checks the bale
weight, packet weight, bundle weight and tare weight checking is made

MARKETING DEPARTMENT

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The marketing department has kept an long relationship with its customers from
purchasers and suppliers. The mill manufacture hank yarn and cone yarn as per the
market demands the sale of hank yarn and cone yarn is of 40:60 the daily production of
yarn is about 7500 kgs
Were mill works 24 hours for all seven days a weak
The selling of yarn is given to the weavers co-operative apex organization and
Karnataka handloom development corporation the mill gets order by phones by there
own sales depot and by local agents. The marketing department fixes the price of yarn
before fixing of price the department look after the total cost of production and market
demand and checking competitors price rate and quality and customers ability of
purchasing
The mill has direct and indirect channels of distribution were as in the direct channel
is from direct mill to the traders and indirect channel it is from mill to the agents and
then to the customers

ADMINISTRATIVE DEPARTMENT

The administrative department is the department which looks after the payment
of salaries, income tax purchasing and the department which maintains the files and
records etc. up to the date and collecting and presenting data of record and the
department which maintains office and provides the necessary required facilities
The administration department which decides on giving yearly bonus and to
provide the finance to all department and the department which conducts the meeting,
implementing the polices, controlling of different department and finally it is a
department which controls over all the activity of the mill.

MAINTENANCE DEPARTMENT

It is the department which has an relationship with the production
department. This department helps in maintaining of plant and machinery which to
work properly. If there is of any cause in machines the technicians are there to look

BABASAB PATIL 27


after and make repairs and maintain and look over all machines daily the department
keeps the stock of important spare parts of machine and it maintains.
The department which looks over the blow rooms its new lines, pre opener,
mbo, mono-cylinder, unimix, ERM, VXL, in blow room these all machines will make
cleaning for every 10 days and while cleaning if there is any repair then it that part will
make repair if it is need of replacement it will be replaced. In carding room half setting
is done for once in 15 days and full setting is done once in 3 months and larrikin wire
changing has been done for every 9 months
In the simplex department the general cleaning will be done for every 15 days
and in spinning department there is also general cleaning will be done for every 10 days
and spindle oil changing for every 6 months and spindle gauge also for 6 months and in
winding general cleaning has been done once in a week and spindle servicing is done
once in 30 days and in reeling oiling will been made once in a month and in packaging
cleaning once in a month will be done like these the maintenance department will
maintain the all department of the G.C.T.M.

SWOT ANALYSIS

STRENGTHS

1) Good reputation in the market

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2) Good network of dealers
3) Well connected with roads
4) Well established in infrastructure facilities
5) 45% share capital given by the government
6) New specialized types of machines
7) Good support from the farmers as well as from the society
8) Financially strong

WEAKNESSES

1) No nation wide brands
2) Less sales promotion activities
3) Large work force
4) Partly automated
5) Lack of R&D
6) Low labour productivity
7) Not concentrating towards competition

OPPORTUNITIES

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1) Land is available for expansion
2) Company can tie with other reputed company
3) Existence of a large market
4) Possibility of 100% automations
5) Market expansion
6) They are shortly getting the ISO 9001

THREATS

1) Decreasing in agricultural production
2) Globalization and liberalization
3) Cut through the competition
4) Taste and fashion of customers turning towards the ready
Made Garments
5) Negligence of Government as well as less guidance and low
Support from the Government

WORKING CAPITAL

MEANING AND DEFINITION OF WORKING CAPITAL

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Working capital is the amount of funds which a company has to finance its day to
day operations it can be regards as the part of capitals which the capitals is basically
classified into fixed and working.
Fixed capital is normally invested in fixed assets and working capital in current
assets. It is used in day to day operations. These are the funds that are invested in
current assets. The form of these current assets keeps on changing. Ex: Raw material to
work in progress to finished product. , so it is also called circulating capital.
A study of working capital is of major part of the external and internal analysis
because of its close relationship with the current day to day operation of the business.
Working capital consists of broadly for that the assets of a business that are used at
related current operation and is represented by raw material, stores, work in progress,
and finished goods merchandise, bills receivable.

Definition of working capital

Gerstenberg

“working capital means current assets of company that are changed in the
ordinary course of business from one form to another, ex: from cash to inventories,
inventories to receivables, receivables into cash”

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Shubin

“ Working capital is the amount of funds necessary to the cost of operating the
enterprise. Operating expenses involve investment in current assets, payment towards
overhead and expenses. Investment made in these heads is classified as working
capital”.

J. smith

“ The sum of the current assets is the working capital of the business”
’’WORKING CAPITAL = CURRENT ASSETS – CURRENT LIABILITY”

CONCEPT OF WORKING CAPITAL
There are two concepts of working capital that are:
1) Balance sheet concept
2) Operating cycle concept.

1) Balance sheet concept:

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Working capital as per this defined in terms of current assets and current liabilities.
Balance sheet concept further classifies working capital into a) gross and b) net working
capital.
a) Gross working capital: it refers to total investment made in current assets. It is also
called circulating rotating from one head to another. Ex. Cash to raw material, raw
material to finished products, finished products to debtors, and debtors to cash. This
concept stresses on quantity aspect; i.e. to refer to total investment made in different
current assets. Bonneville and beway have defined gross working capital as ’’ any
fund received which increases the current assets”.

b) Net Working capital: as per this concept working capital is the difference between
current assets and current liabilities. This concept stresses on quality aspect of
working capital. The difference between current assets highlights on liquidity aspect
and quality of current assets. A firm that has excess of current assets over liabilities is
said to possess adequate liquidity. On the contrary firm that has excess of current
liability over current assets means it does not have adequate liquidity. It means that
part of current assets of such firm are financed through fixed assets.

2) Operating cycle concept:
Operating Cycle or Working Capital Cycle indicates the length of time between
affirms paying for raw materials entering into finished stock and receiving cash on the
sales of such Finished Stock.

This operating cycle differs from firm to firm. Longer the operating cycle greater
will be the amount of Working Capital required and vice versa. Thus it plays an
important role in determining the Working Capital needs of a firm.

BABASAB PATIL 33


OPERATING CYCLE CHART

Cash Raw Materials

Debtors

Sales Finished good Work In
Process

Operating Cycle is the time duration required to convert sales, after the
conversion of resources into inventories, into cash. The operating cycle of a G.C.T.M
involves three phases.
1. Acquisition of resources such as raw material, labour, power and
fuel etc.
2. Manufacture of the product which includes conversion of raw
material into work-In- progress into finished goods.
3.Sales of the product either for cash or on credit. Credit sales creates
book Debts for collection.

In the THE GADAG CO-OPERATIVE TEXTILE MILL LTD (manufacturing
concern), the working capital operating cycle starts with the purchase of raw materials
and ends with the realization of cash from the sale of finished products. It is also

BABASAB PATIL 34


called as cash conversion cycle, production cycle etc. It involves the purchase of raw
materials and stores, its into stocks of finished goods through the work-in-Progress
with the progressive increment of labor and service costs, conversion of finished
goods (Yarn Products) into sales, Debtors and receivables and ultimately realization
of cash and this cycle continuous again from cash to purchases of raw material and so
on.

CLASSIFICATION OF WORKING CAPITAL
Working capital can be classified on the basis of concept and on the basis of time.
Various types of working capital are as follows

BABASAB PATIL 35


KINDS OF
WORKING
CAPITAL

1. ON THE 2. ON THE
BASIS OF BASIS OF
CONCEPT TIME

GROSS NET TEMPORAR
PERMANEN
WORKING WORKING Y OR
T OR FIXED VARIABLE
CAPITAL CAPITAL

REGULAR RESERVE SEASONAL SPECIAL

1) On the basis of concept :
Working capital on this basis of concept is classified into
A) Gross working capital: It refers to total investment made in current asset.
Current assets are the asset which can be converted into cash within a short period
of an accounting year. Current assets include cash, debtors, bills receivables and
short term securities etc.
B) Net working capital: It is the difference between current assets and current
liabilities. Current liabilities are those claims of outsiders which are expected to
mature for payment within an accounting year and include creditors, bills payable
and outstanding expenses. Net working capital can be positive or negative.
Positive net working capital will arise when current asset exceeds current
liabilities. A negative net working capital occurs when current liabilities are in
excess of current assets.

2) On the basis of time :
Classification of working capital in this case is made on the basis
of time for which investment is required. Kinds of working capital in

BABASAB PATIL 36


this category are:
1) Permanent : Some portion of working capital always remain permanent or fixed.
This refers to minimum investment a firm has to make and keep in certain current
assets. Firm has to always maintain minimum cash balance, inventory, debtors etc.
as there current assets are required permanently. They are normally financed
through long term capital.
Such permanent working capital is further classified into
a) regular and b) reserve
a) Regular: regular permanent working capital is used in
routine business operations.

b) Reserve: reserve working capital refers to some portion of working capital that is
kept as reserve to meet any contingency.

2) Temporary working capital: required of such capital varies or fluctuates depending on
season. Its requirement is not continous it is normally finance through short term
sources, like overdraft, cash credit and other short term liabilities.
Temporary working capital is further classified into:
A) Seasonal working capital: requirement of working capital is based on particular
seasons
ex; winter, summer or festival seasons etc during these seasons there will be
additional demand for the products. To meet out such demand firm has to make
additional arrangement of working capital.
B) Special working capital: requirement of such working capital is necessitated to meet
demands of special occasion’s ex. Occasion of world cup cricket, Olympics, kumba
mela, elections. During these special occasions demand for goods and service will
increase. To meet such special demand firm has to make temporary arrangement of
working capital

DETERMINANTS OF WORKING CAPITAL

BABASAB PATIL 37


Requirement of working capital differs from one firm to other. This is because of
business conditions and policies of conducting business differ. Working capital required by
each from is determined by following factors.
1) Nature of business: important factor that determines requirement of working capital is
nature of business a firm is undertaking. Firm that are engaged in production and marketing
need more working capital compared to the firm that are in trading or service oriented
business. This is because manufacturing units need more current assets compared to service
oriented units.
2) Size of business: Size of the business obviously determines the requirement of the
working capital bigger the size more is the requirement of the working capital. Larger the
scale of operations, larger the investment required in current assets.
3) Operating cycle: Operating cycle means period from which investment is locked up in
different operations. Longer the period of inventory holding, work in progress, finished
goods etc more is the investment needed in the operations. This necessities more
investment in current assets.
4) Stock turn over: stock turnover refers to number of times stock is turned over that is it
refers to sales. Quicker the stock turn over (quick sales) less is the working capital. Slow
pace of stock turnover demands more investment is locked up in operation.
5) Credit policy: Credit policy of the firm will influence requirements of working capital.
Firms that offer liberal credit to the debtor have make more investment in production
operations. Such firms need more working capital to keep their production operation
continuous. Requirement of working capital will be much more if the firm buys on cash and
sells on credit. On the contrary firms that buy on credit and sell on cash basis need less
working capital.
6) Production policy: Firms that undertakes all production operations within the organization
need more working capital. Such firms have to make investment to manufacture every
component or part. On the contrary, firms which undertake outsourcing that is buying some
of the components or parts from out side agencies need less working capital.
7) Growth of business: Firms that are experiencing growth need more working capital. Such
firms have to constantly increase their production levels. To meet rising needs of sales
targets. They need to continuously increase investment in current assets.
8) Earning capacity and its appropriation: firms that earn sufficient profits and invest a portion
of profit in business needs less working capital. Ploughing back of profits and accumulated
reserves will minimize dependency on external capital for working capital needs. On the

BABASAB PATIL 38


contrary firms that follow liberal divided policy are firms that do not have adequate surplus
need to borrow more to meet regular working capital needs.

Needs of Working Capital:

The need for working capital to run the day-to-day business activities cannot
be overemphasized. We will hardly find a business firm which does not required any
amount of working capital. Indeed, firms differ in their requirements of the working
capital.

The firm’s aim is that maximizing the wealth of shareholders. Earning a
steady amount of profit requires successful sales activity. The firm has to invest
enough funds in current assets for generating of sales activity. Current assets are
needed because sales do not convert into cash instantaneously. There is always an
operating cycle involved in the conversion of sales into cash. Therefore Working
Capital required for:

1) To meet the cost of inventories including total of raw materials purchased parts,
operating
Supplies, work in progress, finished goods.
2) To pay wages, salaries, for indirect labor, clerical staff, managerial and
supervision staff.
3) To meet overhead costs, including those of maintenance services activities, fuel,
power charges, taxes and general expense administration.
4) To bear the expansion (with regard to promotion of sales) e.g. expenses on
packing, advertisement, salesmanship, Sales Servicing, After requires, Credit
Facilities, Delivery Services, etc.

IMPORTANCE OF WORKING CAPITAL

Even though the skills for maintaining the working capital are somewhat
unique, the goals are the same-viz. to make an efficient use of funds for minimizing
the risk of loss to attain profit objectives.

BABASAB PATIL 39


Firstly, the adequate of working capital contributes a lot in raising the credit-standing
of a corporation in terms of favorable rates of interest on bank loan, better terms on
goods purchased, reduced cost of production on account of the receipt of cash
discounts, etc.

Secondly, a company with sufficient working capital is always in a position to take
the advantage of any favorable opportunity either to purchase raw materials or to
execute a special order or to wait for better market position.

In the third place, the ability to meet all reasonable demands for cash without
inordinate delay is a great psychological factor to improve the all rounds efficiency of
the business.

Lastly, during slump the demand for working capital, instead of coming down, shoots
up. A good amount of working capital is locked up in the inventories and book debts.
Concerns having ample resources can tide over that period of depression.

Thus, working capital is regarded as one of the conditioning factors in the long run
operations of the firm, which is often inclined to treat it as an issue of short run
analysis and decision making.

Components of Working Capital:

There are two components of Working Capital
A. Current Assets
B. Current Liabilities

A) Current Assets:
Components of Current Assets are as follows:
1. Cash & Bank Balance
2. Stock of Raw Material at cost- work in process and Finished
Goods.
3. Advanced Recoverable in Cash or kind or kind or for value to

BABASAB PATIL 40


be received.
4. Deposits under the company scheme.
5. Advanced payment of income takes credit certificates..
6. Outstanding debts for a period exceeding six months.
7. Balance with central excise authorities.

B) Current Liabilities:
Components of Current Liabilities are as follows:
1. Sundry Creditors for the goods and expenses.
2. Income tax deducted at sources from contractors.
3. Expenses Payable.
4. Unclaimed Dividend.
5. Security Deposits.
6. Liabilities for bills discounted.
7. Bank Overdraft Acceptance.

Working Capital Management concerned with the following aspects:

1. Cash Management:
Cash is the important current asset for the operation of the business. cash is
the basic input needed to keep the business running on a continuous basis; it is also
the ultimate output expected to be realized by selling the service or product
manufactured by the firm. The firm should keep sufficient cash, neither more nor less.
Cash is the liquid form of an asset. It is the ready money available in the
firm or with the business, essential for its operations. A firm needs the cash for the
following three purposes:
(a) The Transaction Motive:
(b) The Precautionary Motive:
(c) The Speculative Motive:

2. Receivables Management:

BABASAB PATIL 41


Receivable represents amounts owed to the firm as a result of sale of
goods or services on the ordinary course of business. These are claims of the
firm against its customers and form part of its current assets. These receivables
are carried for the customers. The period of credit and extent of receivables
depends upon the credit policy followed by the firm. The main purpose of
maintaining or investing in receivables is to meet competitors, to increase sales,
and to maintain a cordial relationship with the clients.

3. Inventory management:
Every enterprise needs inventory for smooth running of its activities. It
serves as a link between production and distribution process. There is, generally a
time lag between the recognition of a need and its fulfillment. The greater the time
lag, the higher the requirements for inventory. The unforeseen fluctuations in
demand and supply of goods necessitate the need for inventory. Moreover, it
provides a cushion for future price fluctuations.

ANALYSIS AND INTERPRETATION

Statement of changes in working capital

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Particulars As @ As @ Effect
31/3/05 31/3/06 of wc decrease
Increase
A. Current assets
Cash on hand 15143 41550 26407
4634497 392952
Cash at bank 5027449
F.D with bank 16051822 246822 15805000
Deposits 4628150 4630150 2000
Sundry debtors 35371142 51579031 16207888
Pre university college 255296 255296
Loan to FCSM 8500000 8500000
Advances 1616172 4062468 2446296
Other receivables 633633 631633 2000
Closing stock 52948390 53043163 94773

Total current assets 125047200 127624611
B. Current liabilities
Current liabilities 40050746 49098335 9047589
Bonus provision payable 1280042 25794
1254248
Other payables 2090328 2713579 623252
Total current liability 43395322 53091956
Net working capital(A-B)
81651878 18777364 25896587
74532655

Increase or decrease in 7119223 7119223
working capital
Total working capital 81651878 81651878 25896588 25896558

INTERPRETATION

BABASAB PATIL 43


The statement shows that the changes in working capital in the year 2004-05 and
2005-06. It shows how the current assets and current liabilities are changes in two
years the different between current asset and current liabilities i.e. net working capital
of two years 2004-05 and 2005-06 is Rs 81651878 and Rs 74532655 respectively it
shows the working capital decreases of Rs 7119223 in 2005-06 which compare to
2004-05. Here due to decrease the firm is not satisfactory with its working capital

In current assets
1. cash in hand increases of Rs 26407
2. cash at bank is decreasing of Rs 392953
3. F.D with banks is also decreased Rs 15805000
4. deposits has increased of Rs 2000
5. sundry debtors has increased of Rs 16207888
6. advances has increased to Rs 2446296
7. other receivables has decreases of Rs 2000
8. closing stock has increased to Rs 94773

In current liabilities
1. bonus provision is increasing of Rs 25794
2. other payables is increasing of Rs 623252
3. other liabilities are increased to Rs 9047589

BABASAB PATIL 44



31/3/06 31/3/07 of wc Decrease
Increase
A. Current assets
Cash on hand 41550 20530 21020
18446450 13811952
Cash at bank 4634497
F.D with bank 265078 18256
246822
Deposits
4630150 4630150
Sundry debtors 47320434 4258597
51579031
Pre university college
255296 255297
Loan to FCSM ltd 8500000
8500000
Advances
4062468 5151421 1088953
Other receivables 500000 131633
631633
Closing stock
53043163 62356456 9313293

Current liabilities 49098335 58462247 9363912
Bonus provision payable 1280042 1395879 115837
Other payables 2713579 2972036 258457
Total current liability
53091956 62830162
Net working capital(A-B) 74532655 84615654 24232454 14149456

working capital

BABASAB PATIL 45


INTERPRETATION

This statement shows that the changes in working capital in the year 2005-06
and 2006-07. it shows the current assets and current liabilities i.e net working capital
of two years is 2005-06 and 2006-07 is rs 74532655 and rs 84615654 respectively. It
shows the working capital increases Rs 10082999 in the year 2006-07 compare to
2005-06 by increasing the firm is satisfactory with its working capital.

In current assets
1. cash in hand has decreased by Rs 21020
2. cash at bank is increased to Rs 13811952
3. F.D with bank is increasing of Rs 18256
4. there is no increase or decrease in deposits
5. sundry debtors is decreased to Rs 4258597
6. advances paying increased to Rs 1088953
7. other receivables has decreased to r 131633
8. closing stock is increased to Rs 9313293

In current liabilities
1. bonus provision is increased of Rs 115837
2. other payable is also increased of Rs 258457
3. other liabilities is increased to Rs 9363912


BABASAB PATIL 46


Increase
A. Current assets
Cash on hand 20530 40460 19930
18446450 16228726 2217724
Cash at bank
Fd with bank 265078 275078 10000
Deposits
4630150 4431466 198684
Sundry debtors 47320434 51709943 4389509
255297 255297
Loan to fcsm ltd hulkoti 8500000 8500000
Advances
5151421 5687379 535958
Other receivables 500000 535374 35374
Closing stock
62356456 58071755 4284700
Recvd from NCDC - -------------------------- 1319412 1319412
Total current assets
147445816 147054890
Current liabilities
58462247 49593596 8868651
Bonus provision payable 1395879 1564000 168121
Other payables
2972036 2971114 922
NCDC payable 1319412 1319412
84615654 91606768
Net current assets(A-B) 15179756 8188641
Increase or decrease in
6991114 6991114
working capital


BABASAB PATIL 47


INTERPRETATION
The statement shows that the changes in working capital in the year 2006-07
and 2007-08 it shows how the current assets and current liabilities are changes in the
two years the difference between current assets and current liabilities i.e. net working
capital of the two years is 2006-07 and 2007-08 is Rs 84615654 and 91606768
respectively. It shows the working capital increases of Rs 6991114 in the year
2007-08 compare to 2006-07 by the increase in the net working capital firm is
satisfactory with its working capital

In current asset
1. cash in hand increased of Rs 19930
2. cash at bank increased of Rs 2217724
3. F.D. with bank has increased of Rs 10000
4. deposits has decreased to Rs 198684
5. sundry debtors has increased to Rs 4389509
6. advances paying is increased to Rs 535958
7. other receivables also increases of Rs 35374
8. closing stock has decreased of Rs 4284700
9. there is a receivables from NCDC of Rs 1319412

In current liability
1. bonus provision has increased of Rs 168121
2. other payable has decreased of Rs 922
3. payable of received of NCDC of Rs 131912
4. other liabilities has decreased to Rs 8868651


BABASAB PATIL 48


Increase
A. Current assets
Cash on hand 40460 277094 13366
Cash at bank 16228726 19346310 3117584
Fd with bank 275078 275078
Deposits 4431466 4052950 378516
Sundry debtors 51709943 51003132 706810
255297 255297
Loan to fcsm ltd hulkoti 8500000 8500000
Advances
5687379 4858428
Other receivables 535374 828951
1021508 486134
Closing stock 58071755 46289123
1319412 11782632
Recvd from NCDC ----------- 1319412
Current liabilities 49593596 52486226
1564000 2892630
Bonus provision payable 1227535 336465
Other payables 2971114 4744789 1773675
NCDC payable 1319412 1319412
Net working capital (A-B) 91606768 77170370 5259595 19695992

working capital

INTERPRETATION

BABASAB PATIL 49


The statement shows that the changes in working capital in the year 2007-08 and
2008-09 it shows how the current assets and current liabilities are changes in the two
years the difference between current assets and current liabilities i.e. net working
capital of the two years 2007-08 and 2008-09 is Rs 91606768 and Rs 77170370
respectively it shows the decreasing of Rs 14436398 in 2008-09 which compare to
2007-08 by decreasing in net working capital the firm is not satisfactory with its
working capital

In current assets
1. cash in hand has decreased of Rs 13366
2. cash at bank is increased of Rs 3117584
3. F.D with bank has no changes
4. deposits has been decreased of Rs 378516
5. sundry debtors has decreased to Rs 706810
6. advances is decreased of rs828951
7. other receivables has increased of Rs 486134
8. closing stock is decreased to Rs 11782632
9. received from NCDC of Rs 1319412 is decreased

In current liability
1. bonus provision is decreased to Rs 336465
2. other payables is increases of Rs 1773675
3. NCDC payables in decreased of Rs 1319412
4. other liabilities has increased of Rs 2892630

CALCULATION OF OPERATING CYCLE OF THE G.C.T.M. LTD

BABASAB PATIL 50


Investment in working capital is influenced by four key events in the production
and sales cycle of the G.C.T.M

• Purchases of raw materials
• Payment of raw materials
• Sale of finished goods
• Collection of cash for sale

The firm begins with the purchase of raw material which are paid for after a
delay which represent the account payable period. The firm converts the raw material
into finished goods and then sells the same. The time lag between the purchase of raw
materials and sale of finished goods is the inventory period customers pay there bills
some time after the sales. The period that elapses between the date of sales and date of
collection of receivable is the accounts payable period.
The time that elapses between the purchase of raw materials and the
collection of cash for sales is referred to as the operating cycle. Where as the time
length between the payment for raw material purchases and the collection of cash for
sales is referred to as the cash cycle. The operating cycle is the sum of the inventory
period and the accounts receivable period, whereas the cash cycle is equal to the
operating cycle less the accounts payable period.
From the financial statement of the firm we can estimate the inventory period,
the accounts receivable period and accounts payable period.

Inventory period = average inventory
Annual cost of goods sold/365

Average receivable period = average accounts receivable
Annual sales

Accounts payable period = average accounts payable

Financial information of THE G.C.T.M. Ltd 2005-2006

Particulars P&l a/c data Particular Beginning Ending

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Sales 231390442 Inventory 46919052 46274537
Cost of 206149519 A/c receivable 633633 631633
goods sold A/c payable 1254248 1280042

Sales = sales + yarn sales + other sales
228943400 + 700864 + 1746178
= 231390442

Cost of production 210628618
Add opening stock of finished goods 20107336
230735954
Less closing stock of finished goods 24586435
Cost of goods sold 206149519


= 46596794
206149519/365

= 46596794
564793

= 82.50

Annual sales

BABASAB PATIL 52


= 632633
231390442/365

= 632633
633946

= 0.99


= 1267145
206149519/365

= 1267145
56479320

= 2.24

Operating cycle = inventory period + accounts receivable period

= 82.50 + 0.99

= 83.49

Cash cycle = operating cycle – accounts payable period

= 83.49 – 2.24

= 83.49



BABASAB PATIL 53


Sales 254655866 Inventory 46274537 50785141

3484623 + 250490529 + 680714
= 254655866

245439077


= 48529839
21519439/365

= 48529839
589568

= 82.31

Annual sales

= 565816
254655866/365

BABASAB PATIL 54


= 565816
697687

= 0.81


= 2126039
215192439/365

= 2126039
589568

= 3.60

Operating cycle = inventory period + accounts receivable
period

= 82.31 + .81

= 83.12


= 83.12 – 3.60

= 79.52



BABASAB PATIL 55


Sales 274253348 Inventory 55889767 50785141

262156033 + 1131833 + 10965481
= 274253348

266026973


= 106674908/2
244014252/365

= 53337454
668532

= 79.78

Annual sales

= 2354786/2
274253348/365

= 1177393

BABASAB PATIL 56


751379

= 1.56


= 7262562/2
244014252/365

= 3631281
668532

= 5.43


= 79.78 + 1.56

= 81.34

= 81.34 – 5.43
= 75.91



BABASAB PATIL 57


Sales 256739185 Inventory 50785141 39186088

13609228 + 242486231 + 643726
= 256739185

255051521


= 89971229/2
231802183/365

= 44985614
635074

= 70.83

Annual sales

= 2876294/2
256739185/365

= 1438147

BABASAB PATIL 58


703395

= 2.04


= 10262849/2
231802183/365

= 5131424
635074

= 8.08


= 70.83 + 2.04

= 72.87

= 72.87 – 8.08
= 64.79

Years Inventory Account Account Operating Cash
period receivable payable cycle cycle
period period
2005-06 82.50 0.99 2.24 83.49 81.25
2006-07 82.31 0.81 3.60 83.12 79.52
2007-08 79.78 1.56 5.43 81.34 75.91

BABASAB PATIL 59


2008-09 70.83 2.04 8.08 72.87 64.79

operating cycle

86
84
82
80
78
days

76 Series1
74
72
70
68
66
2005-06 2006-07 2007-08 2008-09
years

INTERPRETATION :

Here the firm’s operating cycle has continuously decreased from 83 days
during 2005-06 to 73 days during 2008-09. The operating cycle of the firm is
satisfactory because it has come down by 10 days. The firm’s cash cycle is also
satisfactory as it has decreased from 82 days to 65 days during 2005-06 to 2008-09.
However it is also observed that the debtor’s collection period has increased from
0.99 days to 2.08 days during the same time period.

BABASAB PATIL 60


RATIO ANALYSIS

BABASAB PATIL 61


INTRODUCTION

The ratio analysis is one of the most important and powerful tools of financial
analysis. It is the process of establishing and interpreting various ratios. It is with
the help of ratios that the ratios that the financial statement can be analyzed more
clearly and decisions made from such analysis.

CONCEPT OF RATIO

A ratio is a simple arithmetical expression of the relationship of one number to
another. It may be defined as the indicated quotient of two mathematical
expressions. According to Accountant’s handbook by Wixonkell and Bedford, a
ratio “is an expression of the quantitative relationship between two numbers”.

RATIO ANALYSIS

Ratio analysis is the technique of calculation of number of accounting ratios from
the data found in the financial statements, the comparison of the accounting ratios
with those of the previous years or with those of other concerns engaged in similar
line of activities or with those of standard ratios and the interpretation of the
comparison.

CURRENT RATIO

BABASAB PATIL 62


The current ratio of a unit measures firm’s short-term solvency, that is, its
ability to meet short-term obligations. It is the ratio of total current assets to total
current liabilities.

The current ratio measures the ability of the firm to meet its current liabilities-
current assets get converted into cash in the operating cycle of the firm and provide
the funds needed to pay current liabilities.

It is calculated by dividing total current assets by total current liabilities:

CURRENT RATIO = CURRENT ASSETS/CURRENT LIABILITES

Sl.no Years Current Current Current ratio
assets liability
1 2004-05 125047200 43395322 2.88

2 2005-06 127624611 53091956 2.40

3 2006-07 147445816 62830162 2.34

4 2007-08 147054890 55448122 2.65

5 2008-09 135628920 58458550 2.32

current ratio

3.5
3
2.5
2
ratio

Series1
1.5
1
0.5
0
2004- 2005- 2006- 2007- 2008-
05 06 07 08 09
years

BABASAB PATIL 63


INTERPRETATION:

The standard for current ratio is 2:1 but the firm’s current ratios are more than the
standard the highest ratio is 2.88 in the year 2004-05 and the lowest ratio is 2.31 in the
year 2008-09. And also it found that there is an excess amount in current assets its
shows that the firm is not utilizing the funds from current assets properly the firm
need to concentrate on its excess amount.

QUICK RATIO

This ratio is also termed as Acid-test ratio. A Quick ratio is concerned
with, the relationship between quick assets and current liabilities.
It is a measure of liquidity calculated dividing current assets minus inventory and
prepaid expenses by current liabilities.
The Quick Ratio is the ratio between quick current assets and current liabilities.
It is calculated by dividing the Quick Current Assets by the Current Liabilities.

BABASAB PATIL 64


QUICK RATIO = QUICK ASSETS/QUICK LIABILITES

Quick asset = current assets –inventory, prepaid expenses
Quick liability = current liability – bank overdraft

Sl.no Years Quick assets Quick Quick ratio
liability
1 2004-05 72098810 30847985 2.33

2 2005-06 74581448 53091956 1.40

3 2006-07 85089360 62830162 1.35

4 2007-08 88983135 55448122 1.60

5 2008-09 89339797 58458550 1.52

quick ratio

2.5

2

1.5
ratio

Series1
1

0.5

0
2004- 2005- 2006- 2007- 2008-
05 06 07 08 09
years

INTERPRETATION:

The standard ratio for quick ratio is 1:1 but the firms quick ratio are more than the
standard the highest quick ratio is 2.33 and lowest quick ratio is 1.35 so it found that
there is quick ratio is more than the standard by having more the ratio it shows that th.
So the has to concentrate for collection of funds.

BABASAB PATIL 65


INVENTORY TURNOVER RATIO

Inventory turnover ratio is the ratio, which indicates the number of times
the stock is turned over i.e., sold during the year. In other words, it is the ratio
between the cost of goods sold and closing stock. This ratio can be calculated as
follows.

INVENTORY TURNOVER = COST OF GOODS SOLD
AVERAGE INVENTORY

Sl.no years Cost of Average Ratio
goods sold Inventory
1 2004-05 256843587 46438421 5..53
2 2005-06 206149519 46596794 4.42
3 2006-07 215192439 51082152 4.21
4 2007-08 244014252 53337454 4.57

5 2008-09 231802183 44985614 5.15

BABASAB PATIL 66


inventory turnover ratio

6
5
4
ratio

3 Series1
2
1
0
2004- 2005- 2006- 2007- 2008-
05 06 07 08 09
years

INTERPRETATION:

The inventory turnover ratio shows how the inventory is turning into
receivables through sales. Here in the firm highest inventory turnover is 5.53 in
2004-05. it indicates that there was a good inventory management in 2004-05 whereas
in the year 2006-07 there is low inventory turnover which implies that in 2006-07
there was excessive inventory levels than warranted by production and sales activity.
In the year 2008-09, the inventory turnover is 5.15.

GROSS PROFIT RATIO.

The gross profit ratio reflects the efficiency with which management
produces each unit of product. This ratio indictes the average spread between the cost
of goods sold and the sales revenue

GROSS PROFIT RATIO = GROSS PROFIT /SALES

Sl.no years GROSS SALES RATIO
PROFIT

BABASAB PATIL 67

Working capital management @ gadag textile project report

Working capital management @ gadag textile project report

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